What is a viatical settlement?

A viatical settlement refers specifically to the sale of a life insurance policy for an amount that exceeds its cash surrender value. In this arrangement, a policyholder who is typically terminally ill sells their life insurance policy to a third party for an immediate cash payment that is less than the face value of the policy but greater than the cash surrender value. This arrangement allows the policyholder to receive funds that can be used for medical expenses or other financial needs while still providing the third party with a potential profit when the insured individual passes away.

This practice is particularly significant in the context of individuals facing terminal illnesses who might require immediate access to capital. Viatical settlements are regulated under specific laws to protect consumers, ensuring that the process is transparent and that the rights of all parties involved are respected.

Other choices do not accurately reflect the definition of a viatical settlement. For instance, the sale of a life policy for its cash surrender value does not involve a premium and does not take into account any amounts greater than cash surrender value. Similarly, donating a policy to a charity or transferring it to a family member do not involve a financial transaction that constitutes a settlement in this context.